Thank you for sharing!

Your article was successfully shared with the contacts you provided.

WASHINGTON, DC-In a report to the US Congress, the “President’s Working Group on Financial Markets” validates GAO findings about long-term availability and affordability of terrorism insurance. Congress and the real estate and insurance industries have been waiting for the report as part of the due diligence for crafting a permanent solution to the Terrorism Risk Insurance Act, extended for two years in December 2005.

But if these stakeholders were hoping for a definitive answer, the report does not deliver. It notes, for instance, that the insurance sector has improved the methods to support terrorism risk modeling and has made great strides in measuring and managing risk accumulations. The report goes on to lend credence to insurers’ concerns–namely that the modeling strategies are based relies largely on analysis of terrorist behavior. “Given the uncertainty of terrorism in general and, in particular, the uncertainty associated with these modeling efforts, insurers appear to have limited confidence in these models for evaluating their risk exposures,” the report said.

Another issue the report tackles is the demand for terrorism insurance, which has been lower than expected, given the reasonable rates in the market. This is another challenge for insurers, who are not likely to develop, price and reserve the necessary capital to support such policies without a corresponding demand for them.

“It is unclear why approximately 40% of all policyholders do not purchase coverage, although the Treasury’s 2005 study and others have found that the primary reasons were price and assessment of their individual risk to terrorist attack,” the report said.

The combination of these two factors–the difficulty of predicting a terrorist event and the low demand for policies–lead the report’s authors to conclude that predicting the potential degree of long-term development of the terrorism risk insurance market is still “somewhat difficult.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?



Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt
Live Chat

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.